Legal Alert – Difficulties with Arbitrability of Corporate Disputes in Russia
The enforcement of foreign arbitral awards in Russia has been a hot topic among arbitration practitioners for a while now. It is an interesting topic for many Finnish, Scandinavian and also other foreign companies due to their continuous business activities in Russia. Recent legal practice guarantees that the present debate on the enforcement of foreign arbitral awards in Russia will indeed continue.
1. Arbitrability of corporate disputes
In 2002, the adoption of the new commercial procedure code¹ (CPC) in Russia filled many gaps in the Russian procedural legislation. However, with regards to arbitration, it resulted into certain conflicts between the New York Convention and the Russian arbitration legislation, and the norms of the new commercial procedure code. Although the rules of the CPC themselves are mainly clear, the interpretation of the state courts on certain articles of the CPC is somewhat surprising.
According to the commercial and civil procedure codes of the Russian Federation, a dispute can be referred to arbitration (Federal Law on Domestic Arbitration² and Federal Law on International Commercial Arbitration³ ) if not otherwise stated in a federal law.
Consequently, the Russian legislation sets out two requirements on arbitrability: Firstly, the dispute has to be of a civil legal nature and secondly, the dispute cannot belong to a category of disputes which are specified by federal law as disputes not referable to arbitration.
The Russian doctrine (with some exceptions) and legislation4 treat corporate relations as a sort of civil legal relations. In addition, the expected amendments in the Civil Code of the Russian Federation also directly refer corporate relations to the sphere of regulation of civil legislation5. This said corporate disputes fulfil the first requirement as such disputes are regarded as disputes of a civil legal nature.
For compliance with the second condition it can be said that the Russian Federal legislation does not include a direct prohibition on referring disputes relating to corporate relations to arbitration. Therefore, corporate disputes should be arbitrable. However, an analysis of the recent court practice suggests the opposite.
2. Exclusive jurisdiction of the commercial courts
Pursuant to article 248 of the CPC, the commercial courts have exclusive jurisdiction to handle disputes with foreign participants, including disputes set out in article 248(1)(5) of the CPC concerning establishment, liquidation and registration of legal persons and individual entrepreneurs on the territory of the Russian Federation, as well as challenges regarding decisions of bodies of such legal persons.
The meaning of exclusive jurisdiction set out in article 248 of the CPC has already been interpreted by the Constitutional Court of the Russian Federation in connection to real estate disputes under article 248(1)(2) of the CPC. The Constitutional Court came then to a conclusion that the norm on exclusive jurisdiction set out in article 248(1) of the CPC is directed to delimit the jurisdiction between state courts of different countries, and that its exclusivity should not be interpreted as an elimination of the jurisdiction of arbitration courts.
Even though the Constitutional Court made this interpretation on article 248(1)(2) CPC, it is logical to assume that such interpretation also applies on other parts of article 248 of the CPC, such as articles 248(1)(5) of the CPC regarding corporate disputes. Thus, the exclusive jurisdiction of the state courts should not hinder arbitrability of corporate disputes in Russia.
3. Special jurisdiction of the commercial courts
Article 33(1)(2) of the CPC is another article actively used by the Russian state courts in order to prevent arbitration of corporate disputes. The article rules out that corporate disputes (specified in article 225(1) of the CPC) belong to the special jurisdiction of the commercial courts.
The article was recently applied by the Federal Commercial Court of the Moscow Region in the famous case Maksimov6 . The dispute concerned a sale and purchase agreement of shares. Maksimov, AOA NLMK and Maxi-Group entered into an agreement under which Maksimov undertook the obligation to transfer 50% of the shares, plus 1 share in the Maxi-Group, to OAO NLMK, whereas the latter undertook the obligation to pay Maksimov the purchase price. According to the terms of the SPA, the shares were to be paid in two phases. The SPA included a valid arbitration clause. Due to OAO, NLMK refused to pay the second part of the purchase price and the dispute was taken to arbitration.
The court ruled that the provisions of the CPC on special jurisdiction, applicable in this case, indicate that such disputes are not referable to arbitration due to the specific characteristics of relations in the case at hand. The Federal Commercial Court of the Moscow Region came to a conclusion that this civil legal arbitrable dispute on the charge of share purchase price cannot be separated from the matter concerning the transfer of right to such shares, which is a public legal non-arbitrable dispute.
This kind of interpretation on the special jurisdiction doctrine by the commercial courts might seem strange as both the Russian doctrine and legislation describe special jurisdiction as a division of jurisdiction between different types of Russian state courts (courts of general jurisdiction and state commercial courts). The special nature of jurisdiction means that a certain category of disputes is always under the jurisdiction of commercial state courts and not the courts of general jurisdiction, but this does not exclude the arbitrability of such disputes. If the legislator had wanted to disqualify corporate disputes from arbitration, the same solution would have been adopted as in the case of bankruptcy disputes; by including a direct prohibition to refer such disputes to arbitration in the bankruptcy legislation. However, the federal legislator has still not included any explicit restriction on referring the disputes at hand to arbitration.
So far Maksimov has already filed two appeals, regarding the decision of the commercial courts, to the Constitutional Court of the Russian Federation where his requests for review have been denied by rulings No. 1804-O-O/2011 and No. 1488-O/2012.
4. Final remarks
The question of arbitrability of corporate disputes in Russia is so far open. According to the Russian legislation, the number of appeals that can be filed to the Constitutional Court is unlimited, which means that there is a chance that a new appeal can be made in the Maksimov case and that the Court would come to a different decision. It is also possible that the commercial courts would change their position regarding the interpretation of articles when ruling on their jurisdiction.
Nonetheless, some professionals agree that in the case of corporate disputes it is important to pay attention to the nature of such dispute and to its participants. The aspect of protecting the third parties (persons which are not parties to the dispute but are affected by its outcome) has also been discussed.
Conclusively, it is important to note that the current situation in Russia will result in difficulties with enforcement of foreign arbitral awards on the territory of the Russian Federation. The interpretation regarding the conditions of the CPC subject to discussion, which makes corporate disputes non-arbitrable, will hinder the enforcement of awards rendered in corporate matters.
Attorneys at law Borenius Ltd opened an office in St. Petersburg in February 2013. Attorneys at Law Borenius Russia can give professional advice on questions related to arbitrability and enforcement of foreign arbitral awards in Russia.
For additional information
1Commercial Procedure Code of the Russian Federation 24/07/2002 N 95-?? which came in force on 1 September 2002 (??????????? ?????????????? ?????? ??)
2Federal Law on Domestic Arbitration 24/7/2002 ?. N 102-?? (??????????? ????? o ?????????? ????? ? ?????????? ?????????)
3Federal Law on International Commercial Arbitration 7/7/1993 N 5338-I (????? ?? o ????????????? ???????????? ?????????)
4Civil Code of the Russian Federation art. 2
6Case No. A40-35844/11-69-311